“Successful execution of the refinancing initiative”

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The government has refinanced $500 of debt, Prime Minister and Finance Minister David Burt said, adding that “the successful execution of this refinancing initiative, coupled with recent positive ratings from independent ratings agencies, reinforces that Bermuda is on the right track.”

Speaking in the House of Assembly last night [July 15] Premier Burt said, “I am pleased to rise this afternoon to inform this honorable House of the successful execution of a new issue of $500 million senior notes with a 5% coupon which concluded earlier today.

“On Monday, July 11, 2022, – with the unanimous support of the Public Debt Advisory Committee, the government launched a new issue with a target size of $500 million with the objective of prioritizing the cost and fully refinancing its deadlines of December 2022 and January 2023.

“Bermuda issued $500 million with a spread of 210 US Treasuries, for an all-in investment yield of 5.084%. At a coupon price of 5.000%, this generated gross proceeds of $496.74 million. The new issue and offering of 4.138% senior notes due 2023 closed earlier in the day.

“The government intends to use all remaining proceeds to redeem or pay the maturity of all outstanding short-term debt, including any notes due January 2023 that have not been deposited.

“Given current interest rate levels, the government has not accepted any offers for the notes due in 2024. As a result, Bermuda’s remaining medium-term debt is approximately $450 million, with $50 million BD dollars due in Dec. 2023 and the remainder in Feb. 2024. The government will continue to monitor market conditions and opportunities for timely refinancing.”

The Prime Minister’s full statement follows below:

Mr. President, thank you for allowing me to deliver this ministerial statement at this time. According to article 2 [3] of the Government Loans Act 1978, I have the pleasure of rising this afternoon to inform this honorable House of the successful execution of a new issue of $500 million of senior notes with a coupon of 5 % which concluded earlier today.

On Wednesday, July 6, 2022, the Government of Bermuda announced and launched a 3-day virtual roadshow with a series of fixed income investors. These meetings were part of the process of updating investors on the government’s recent plans and performance, while assessing market conditions and opportunities to refinance some or all of the existing debt due to mature within 18 coming months. At the same time, it was also announced that Bermuda would simultaneously offer to redeem for cash two sets of our outstanding USD notes that mature in 2023 and 2024 under a tender offer.

Mr. Chairman, investor feedback was overwhelmingly supportive of a proposed new offering. Accordingly, on Monday, July 11, 2022, – with the unanimous support of the Public Debt Advisory Committee, the Government launched a new issue with a target size of $500 million with the objective of prioritizing the cost and fully refinancing its December 2022 and January 2023 maturities. Initial investor demand led to orders of over $2.5 billion spanning more than 5x target size, allowing the government to tighten the spread to US Treasuries from initial discussion on prices. [IPT] 250 basis points by 40 basis points. Compared to the estimated fair value based on trading levels of existing Bermuda bonds, Bermuda paid a negligible to negative new issue premium, one of the lowest to date in 2022, while other Blue chip US issuers paid between 25 and 50 basis points just days earlier. While spreads are generally higher in this volatile interest rate environment, securing this new issue premium is a great result of a very successful execution.

Mr. Chairman, Bermuda issued $500 million at a spread of 210 US Treasuries, for an all-in investment yield of 5.084%. At a coupon price of 5.000%, this generated gross proceeds of $496.74 million. The new issue and offering of 4.138% senior notes due 2023 closed earlier in the day. The government intends to use all remaining proceeds to repurchase or pay the maturity of all outstanding short-term debt, including any notes due January 2023 that have not been tendered.

Given current interest rate levels, the government has not accepted any tenders for the notes due in 2024. As a result, Bermuda’s remaining medium-term debt is approximately $450 million, with BD$50 million due in December 2023 and the remainder in February 2024. The government will continue to monitor market conditions and opportunities for timely refinancing.

Mr. Chairman, it is important to note that even though interest rates have increased, the government continues to manage its fiscal policy prudently and effectively. As recently announced, we will have reached a 2021/22 shortfall of approximately $95 million, an improvement of approximately $30 million from initial estimates. In addition, we are committed to meeting our budgetary targets in the future. Although annual interest expense increases slightly by approximately $2.3 million as a result of this refinancing, this only represents an increase of approximately 6 basis points in our average cost of capital while reducing the risk of short-term refinancing.

Mr. Chairman, other details and highlights of the transaction include:

  • US$500 million 5.000% 10-year senior bond, US Treasuries +210 basis points, resupply yield 5.084%
  • Proceeds go to
    • Pre-fund a $140 million private placement at 5.73% due December 2022
    • Fund its $354 million 4.138% senior bond tender due January 2023
    • Fund the planned compensatory buyback to clear all remaining 4.138% senior bonds due January 2023
  • The new deal hit the market after months of heightened market volatility, including an inflation report of 8.6% in the United States in June, the Russian-Ukrainian conflict and a massive slowdown in activity on the primary and secondary markets for fixed income securities.
  • Marketing efforts were led by me as Prime Minister and Minister of Finance, Acting Financial Secretary, members of the senior team at the Ministry of Finance and representatives of the Bermuda Monetary Authority.
  • Market response has been outstanding, especially given the backdrop, with over $2.5 billion in orders from a select pool [93 names] of participating accounts, which enabled the very small concession on the price of new issues. Despite the poor backdrop, at UST+210 bps, the deal price was only marginally above last year’s average of 203 bps from 2013 to 2020, reflecting the high quality /Bermuda’s rating, the resilience of economic performance, as well as fiscal prudence and a focus on debt. management [2021/22 estimated fiscal deficit of 1.3% of GDP, 43% debt/GDP].
  • Based on the quotes of the existing bonds at the opening of markets on July 11, 2022, the estimated fair value of the new 2032 bonds was 214 basis points. With Bermuda issuing at 210, this would mean there was a negligible, if not negative, new issue premium, one of the lowest for high-quality issues in 2022. This indicates that investors have fully absorbed the adjustment prices, which is a testament to Bermuda’s strong credit position and the adequacy of the debt management strategy implemented in connection with this transaction.

Mr. Chairman, we would like to thank everyone who played a key role in supporting the Government of Bermuda in this transaction. They include HSBC and Goldman Sachs as advisers and joint bookrunners, Milbank LLP as counsel to the US government, and all other parties and advisers to the transaction.

In addition, I would like to thank the local industry professionals serving on my Public Debt Advisory Committee, who have assisted and fully supported the execution strategy taken by the government. And finally, I would like to thank the team at the Department of Finance who coordinated and led this important initiative and were supported by colleagues from all other departments and authorities, including the Bermuda Monetary Authority, the business development and the Bermuda Tourism Authority.

Mr. Chairman, our objective in these matters has been to ensure that Bermuda continues to implement a strong and robust public finance and debt management strategy. The successful execution of this refinancing initiative, coupled with recent positive reviews from independent rating agencies, confirms that Bermuda is on the right track. We will continue to remain focused, vigilant and prudently manage the assets of the Government of Bermuda, to ensure that we can protect and provide for the people of Bermuda in a fair, equitable and sustainable manner.

Thank you Mr President.

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